Noah Holdings Ltd

NYSE:NOAH

Earnings Call Analysis

Noah Holdings' Balanced Growth and Dividends

In 2023, Noah Holdings saw a revenue increase of 6% to RMB 3.3 billion, driven by 18.1% growth in domestic business and a 73% surge in overseas business. Wealth Management revenues grew by 13.1%, while Asset Management saw an 8.4% decline, influenced by domestic market challenges. Operating profit was RMB 1.1 billion, with a steady margin of 33.3%. The transaction value for RMB products fell, U.S. dollar products soared by 83.4%, and overseas AUM grew by 7.6%. The company effectively managed costs, with headcount decreased by 10.4%, saving RMB 64 million annually. It distributed dividends equating to 100% of 2023's non-GAAP net income due to a robust balance sheet, with a dividend yield over 20%. Despite a decrease in high-end clients, Noah Holdings remains confident in its growth prospects and commitment to shareholder returns.

Navigating Through a Challenging Year with Resilient Growth

In the face of global economic challenges, the company showed resilience and adaptability. Total revenues climbed to RMB 3.3 billion, marking a 6% year-on-year increase. This growth was a mix of robust domestic and even stronger overseas business performance. Domestically, revenues increased by 18.1%, accounting for 56.8% of total revenues, with legacy product distribution generating a significant portion. International business wasn't far behind with a remarkable 73% surge year-on-year, largely contributing to the overall growth.

The Dominance of Wealth Management and International Client Expansion

The Wealth Management sector was a key revenue driver, with RMB 2.5 billion generated, a 13.1% rise from the previous year. Remarkably, the international wealth management business grew by 71.3%, overshadowing a slight domestic downturn. Similarly, the Asset Management business saw international revenues shoot up by 80%, despite a 8.4% decline overall for the segment. The number of active high net worth clients internationally showed a stellar increase of 38%, clearly indicating a successful scaling of global operations.

Profitability Preserved Amid Expansion Efforts

Despite increased operating costs due to strategic global expansion and one-time expenses aimed at long-term savings, the company managed to maintain a healthy operating profit margin of 33.3%. Prudent cost-control measures and operational efficiencies, including workforce optimization, were pivotal in preserving profitability.

Substantial Returns and Confidence in Shareholder Value

Reflecting their confidence in the company's financial strength and commitment to shareholder value, the Board approved a striking annual dividend of RMB 509 million for 2023. This equates to a 50% payout of the year's non-GAAP net income. Moreover, a special dividend of the same amount was declared, taking the total cash return to RMB 1 billion for the year, representing an attractive dividend yield of over 20% for shareholders.

Strategic Adjustments and A Focused Approach

The company took decisive actions like consolidating operations in smaller cities and centering around hubs to improve operational efficiency. Furthermore, they focused on enhancing the competency of their relationship managers, ensuring they meet higher performance standards—efforts that align with both client migration trends to major cities and the need for talent re-alignment due to changing macroeconomic conditions.

Financial and Operational Prudence

The discipline in managing finances was evident by the end of 2023. With a robust current ratio of 3.8x and no interest-bearing debt, the company fortified its position and preparedness for further global initiatives. The Board's decision to return considerable funds to shareholders via dividends attests to their strategy of rewarding investor loyalty while pacing the expansion plans sensibly.

Earnings Call Transcript 2023-Q4

[Operator]

Good day, and welcome to the Noah Holdings Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Melo Xi, Director of Investor Relations. Please go ahead.

[Melo Xi, executive]

Thank you, operator. Good morning, and welcome to Noah's 2023 Fourth Quarter Earnings Call. Joining me on this call today are Ms. Wang Jingbo, our Co-Founder and Chairlady; Mr. Yin, our Co-Founder, Director and CEO; and Mr. Grant Pan, our CFO. Ms. Wang will begin with an overview of our recent business highlights, followed by Mr. Pan, who will discuss our financials and operating results. They will all be available to take your questions in the Q&A session that follows.

Before we begin, please note that the discussion today will contain forward-looking statements that are subject to risks and uncertainties and may cause actual results to differ materially from those in our forward-looking statements. Potential risks and uncertainties include, but not limited to, those outlined in our public filings with the SEC and the Hong Kong Stock Exchange. Noah does not undertake any obligation to update any forward-looking statements except as required on the applicable law.

In addition, today's call will include discussions of certain non-GAAP financial measures. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures can be found in our earnings release.

Lastly, this call should not be interpreted as a solicitation to sell or purchase any interest in any Noah-affiliated products. Please also be aware that a link to a live webcast with presentation materials is available on our Investor Relations website.

With that, I would like to pass the call over to Ms. Wang. Please go ahead.

[Jingbo Wang, executive]

[Foreign Language]

[Melo Xi, executive]

[Interpreted] I'd like to begin today's call by sharing some recent thoughts on the industry and macroeconomic landscape before I review our performance for the fourth quarter and full year and dive into our strategy going forward.

Over the past year, the Chinese wealth management industry faced considerable challenges. Fundamental shifts are taking place across the sector that require a different strategy and approach to asset allocation for managing speaking high-net worth individuals. Noah's relentless focus on client needs spearheaded our transition from a product-focused model to a solution-driven approach over the past year, ensured our ability to increase the resilience of clients' portfolios in a challenging market environment.

Our proactive decisions to prematurely exit the domestic real estate in 2016 and nonstandardized single counterparty private credit products in 2019 earned a significant trust from clients. Our semiannual CIO House view and CCI model continued to reflect our strategic foresight over the past 3 years, which resonated strongly with clients.

We adopted a 3-pronged strategic approach to navigate this challenging market environment over the past year. Firstly, we're laser focused on ensuring our resilience and adaptivity through economic downturns. Secondly, we are actively accumulating strength to emerge as a leader in the forthcoming recovery. And finally, prioritizing the development of our core capabilities to position us for future growth when opportunities arise.

Noah is a company built on both pragmatism and ambition, allowing us to drive a careful balance between [ 4-, 5-year ] position and seizing new opportunities. By enhancing operational efficiency, retaining top talent, strategically calling cuts while simultaneously investing in new international markets, channels, technologies and the development of global product and service metrics, we are ideally positioned to help clients traverse this market.

Over the past year, we strengthened our full suite of wealth management products and services for Mandarin-speaking clients globally. One key focus has been expanding our ability to offer clients alternative investments on a global basis. We're also seeing global fund managers increasingly focusing on underserved private wealth channels to fill primary markets fund raising.

As a leading private wealth manager recognize our expertise in alternative investments and extensive network of Mandarin-speaking professional investors, this trend presents enormous opportunities for Noah. Going forward, we'll be amplifying these strategic global investments. This includes expanding our service network, bolstering investment research capabilities and significantly enhancing product selection and technological infrastructure. These investments will solidify our foundation as a leader, enabling us to meet growing demand among clients for globally diversified wealth and asset management services.

[Jingbo Wang, executive]

[Foreign Language]

[Melo Xi, executive]

[Interpreted] Looking at our financials for the year. Noah generated total revenues of RMB 3.3 billion, an increase of 6% year-on-year. Our domestic business contributed RMB 1.9 billion, an increase of 18.1% year-on-year and accounting for 56.8% of the total [indiscernible].

Within revenue from our domestic business, revenue generated by legacy distributed products was RMB 1.4 billion, accounted -- accounting for 73.9% of the domestic revenue. Our overseas business generated RMB 1.4 billion, a significant increase of 73% year-on-year, driving overseas revenue contribution from 26.5% of the total net revenues last year to 43.2% this year.

Of revenue generated from new business and products in 2023, our overseas and domestic business accounted for 68.1% and 31.9%, respectively.

Breaking it down by segment. Our Wealth Management business generated RMB 2.5 billion in 2023, an increase of 13.1% from last year. Within Wealth Management, domestic business contributed RMB 1.4 billion, a decrease of 11.7% from last year, which was primarily composed of RMB 0.9 billion in revenue generated by legacy distributed products, accounting for 67.7% of the domestic wealth management revenue. Our overseas business contributed RMB 1.1 billion, a 71.3% increase year-on-year. Our Asset Management business generated RMB 769 million revenue during the year, a decrease of 8.4% from last year. Within Asset Management, our domestic business generated RMB 469 million, a decrease of 30.3% from last year, which was primarily composed of RMB 467 million in revenue generated by legacy distributed products, accounting for 99.4% of the domestic asset management revenue. Our overseas business contributed RMB 299 million, an increase of 80% year-on-year, driven primarily by growth in overseas AUA and AUM.

On the comprehensive services side, revenue from domestic insurance products increased by 1.6% in 2023, of which, 88.9% was generated by new businesses. Revenue from overseas insurance, trust and other comprehensive services surged 301.5% from last year. In tandem, the number of active overseas clients for comprehensive services also grew by 376.3% year-on-year.

Over the past year, we continue to make upgrades to our technology stack aimed at improving client experience globally. We are working with leading insurers to streamline our underwriting process across markets globally. We were the first broker in Hong Kong to launch a fully online underwriting process and allow clients the option to make insurance premium payments through our Hong Kong nominee account, which was a significant enhancement for client experience.

Operating profit for the year came in at RMB 1.1 billion, with an operating profit margin of 33.3%.

[Jingbo Wang, executive]

[Foreign Language]

[Melo Xi, executive]

[Interpreted]

Looking at our domestic wealth management business, we continue to carry on the strategy to focus on first tier and core cities in China. Through our ongoing organizational restructuring, we decreased the number of offices we have from 77 to 44 by the end of the year, and further relocated resources to 18 core cities as of now. As of the end of 2023, the number of domestic relationship managers decreased by 7.6% year-over-year and 12% -- 12.6% sequentially to 1,163.

On the domestic wealth management front, our primary focus has been on strengthening the service capabilities of our relationship managers and enhancing the user experience of technological upgrades to our staff, allowing us to continuously generate new leads from ongoing client services.

The small treasury platform for corporate and institutional clients we launched in 2022 now serves nearly 6,000 clients, a 28.9% increase from last year. Over the past year, the number of active clients served increased by 73.7% year-over-year with average client AUA exceeding RMB 600,000.

Turning over to fees. Our Wealth Management business continued to expand its presence as more relationship managers are brought on board in Hong Kong and Singapore. As of the end of 2023, we had 89 relationship managers onboarded, an increase of 15.6% sequentially. We are committed to further expanding our international RM team, targeting a headcount of 200 by the end of 2024.

As of the end of 2023, we had over 14,900 overseas clients, reflecting a 14.2% increase from last year. The number of clients who purchased our cash management products reached 3,093, a sequential increase of 19.1%, while the number of discretionary investment clients reached 803, an increase of 23 sequentially -- 23% sequentially.

[Jingbo Wang, executive]

[Foreign Language]

[Melo Xi, executive]

[Interpreted] We continue to expand the product offer through our overseas wealth management app, providing an expanded array of solutions for clients, businesses and agencies. The number of overseas active high net worth clients reached 4,629 in 2023, a significant 38% increase from last year. Total transaction value during the same period reached USD 3.3 billion, up 83.4% year-on-year. The number of active clients for our U.S. dollar mutual fund products reached 3,130, up 72% year-on-year with transaction value of USD 1.2 billion, up 110.1% from last year.

On the 2B side, we have successfully onboarded more than 230 overseas corporate and institutional clients, which resulted in transaction value of overseas mutual funds, reaching approximately USD 200 million.

On the 2 agency side, our overseas online wealth management business began trial operations in late 2023, aiming and empower EAM and family offices, clients with the SaaS platform integrated with our full suite of products. As of today, we have signed 9 agency clients with a long-term target of serving 300 EAMs and family office in overseas markets.

[Jingbo Wang, executive]

[Foreign Language]

[Melo Xi, executive]

[Interpreted] In terms of asset management, Gopher's total AUM was RMB 154.6 billion in 2023, a decrease of 1.6% year-on-year. RMB AUM decreased by 4.8% from last year to RMB 118.6 billion. This was primarily driven by exits from RMB private equity assets and decline in the net asset value of some RMB public market products.

Internationally, we continue to enhance our global investment product metrics. Overseas AUM reached USD 5.1 billion in 2023, an increase of 7.6% from last year, driving from an increase in its contribution to total AUM from 20.7% to 23.3%. Overseas AUA, which includes distributed products, reached USD 8.4 billion, an increase of 10.2% year-on-year.

Beyond traditional PE and VC products, we have gradually expanded our alternative offerings to include infrastructure, GP stake, PE secondary and private credit products to provide a more comprehensive product matrix. We also recently launched the Series 4 of our actively managed U.S. dollar, U.S. real estate funds, focusing on development opportunities in the suburban rental apartments in the U.S. subarea. This fund is well positioned as an upstream player within the institutional real estate value chain. As of the end of 2023, AUM for overseas private equity and other primary market funds reached USD 4 billion, an increase of 4.7% year-on-year.

Turning to public markets. We intensified the screening coverage and inclusion of top hedge fund managers globally. We have launched 10 of the global top 50 hedge fund products, with 10 more in the due diligence process. While enhancing the diversity of fund managers and product strategies, we are simultaneously expanding to include structured products with principal protection mechanisms.

In 2023, the transaction value of overseas public markets and structured products reached USD 180 million, an increase of 95.9% from last year.

[Jingbo Wang, executive]

[Foreign Language]

[Melo Xi, executive]

[Interpreted] Lastly, we announced a change to our leadership structure last year by separating the roles of Chairperson and CEO. Mr. [ Zhe Yin ] was the appointed CEO, while I will retain my position as Chairwoman of the Board. This decision will enhance corporate governance, organizational efficiency, promote collectively -- collective decision making, and facilitate Noah's succession plan, and generate opportunities for Noah's deep bench of management talent.

As a co-founder, [ Zander ] has been part of Noah's journey since the beginning. He played a pivotal role in building Gopher Asset Management and possesses a deep understanding of Noah's operations and our client-centric company culture. I'll firmly support [ Zander ] in his new role while continuing to steer Noah's overall strategy and be responsible for Board management and corporate governance.

Please also kindly note that our CEO [ Zander ] and CFO Grant will be reporting quarterly results starting from last quarter. I will still take part in the Q&A session.

I would now like to turn the call over to Grant to go over our financial results in more detail. Before opening the call to Q&A, where [ Zander ] and myself will also participate. Thank you, everyone.

[Qing Pan, executive]

Thank you, Melo. Thanks, Chairlady. And I'm sure most investors are already very familiar with Mr. Zander Yin, and we welcome him to join our future earnings releases and also meetings and calls with our investors.

2023 was a challenging year for China's wealth management industry. China's post-pandemic economic recovery proved to be a little slower than initially anticipated as housing and local government debt problems remained widespread and persistent, driving domestic capital markets and growth. The performances of China's domestic market share, Asia market and Hong Kong stock market also took some heavy adjustments, impacting the issuance of new investment products domestically. The new issuance of mutual fund products, for example, in the domestic market fell 2020 -- 22.7% throughout the year.

On a contrast, in 2023, the Dow Jones industry average index rose by 13.7% with S&P 500 Index and MSCI World Equity index of over 20%. On the alternative side, global fund managers are increasingly focusing on the underserved private wealth channels to fuel primary market fundraising.

According to McKinsey, as of June 30, 2023, the total AUM in private markets reached USD 13.1 trillion, growing nearly 20% per annum since 2018. The sharp divergences in economic and capital market conditions between onshore and offshore markets have created considerable challenges for high net worth clients or demand for global asset security and diversification insurance products and other defensive-driven strategies continues to grow.

As a leading wealth management company recognized for its expertise in alternative investments and extensive network of Chinese professional investors, these trends directly in line with our strategic transaction transition from a product base to a solution-based offering and our ongoing investment in overseas products and services.

In this context, we delivered solid financial results, and our business has proven again to be resilient and adaptive in the face of challenging market environment. Net revenues for the year continued to grow, along with a healthy operating margin of 33.3%. Combined with our asset-light model, generating strong operating cash flow and ample cash on balance sheet, we're extremely confident in the resilience of our business and ability to drive even in complex economic conditions.

With that, let's get into the details of our quarter 4 and entire fiscal year 2023 financial performance. Quarterly net revenues came in just shy of RMB 800 million, a 6.6% increase sequentially. Our net revenues for the year was RMB 3.3 billion, up 6.3% year-over-year.

In terms of breakdown of net revenues for the year, onetime commissions were RMB 1.1 billion, up 60% year-over-year, primarily due to strong distribution of insurance products. Recurring service fees, a key stabilizer in revenue mix, were RMB 1.8 billion, slightly down 4.8% year-over-year due to a decrease in onshore [ AUM ] resulting from changes in NAV and structured products.

Performance-based income was RMB 137 million, down 55.5% year-over-year, mainly due to the underperforming domestic capital markets and limited exit opportunities. And other service fees were RMB 258 million, up 23.4% year-over-year, primarily due to more value-added services provided to our clients.

Breaking down net revenues by region. Overseas net revenues of [ year ] were RMB 1.4 billion, increased by 73% year-over-year, accounting for 43.5% of total net revenues. We've been following our clients' demands and made significant progress in expanding our international presence in 2023, managed to recruit over 100 overseas relation managers as of today. At the same time, we'll continue to enrich our product offerings and enhance cooperation with top global primary and secondary market funds managers and insurance companies, driving an increase in overseas transaction value and AUA by 83.4% and 10.2%, respectively.

In 2023, we officially launched our office in LA, and are actively exploring the opportunities of rolling out services and products in many other places in the world, such as Dubai and in Japan, probably Southeast Asian nations.

With respect to transaction values, we distributed [ RMB 16.4 ] -- RMB 16.5 billion products during the year -- during the quarter, down 8.1% year-over-year and 25% quarter-over-quarter. By region, transaction value for RMB products in the quarter was RMB 10.7 billion, down 17.4% year-over-year and 30.5% quarter-over-quarter. Our transaction value for U.S. dollar products increased by 12% year-over-year and down 13.4% quarter-over-quarter to USD 828 million.

Total transaction values for the year reached RMB 74.1 billion, up 5.4% year-over-year. Breaking this down by region, the transaction value for RMB products was RMB 50.3 billion, down 13% year-over-year while the transaction value for U.S. dollar products increased 83.4% to USD 3.3 million, driven by U.S. dollar cash management and structured products. As of the end of the year, our oversea AUM grew 7.6% year-over-year to USD 5.1 billion, accounting for 23.3% of the total AUM.

Operating costs and expenses increased by 9.2% during the year, primarily due to a low base effect created by COVID lockdown in 2022, which curtailed both marketing activity and business traveling as well as increase in international travel this year in support of global expansion. Combined with our strategic cost controls, operating costs kept reasonable and in line with revenue growth.

Baked into our operating costs for the year were a number of onetime expenses that will generate cost savings over the long term. While the continued urbanization of China, Chinese high net worth investors increasingly migrated to first-tier cities. We have been consolidating teams and resources in smaller cities to nearby hubs, mostly capital and first-tier cities and international regions, accordingly. We expect to benefit from consolidation of these networks to save approximately RMB 10 million, annualized, going forward.

We also looked closely at improving human capital efficiency. The total headcount decreased by 10%, 10.4% overall in 2023, most of which were stemming from mid- and back office personnel, which decreased by 17.2%. This will save RMB 64 million annualized going forward. At the same time, we're allocating resources and firmly implementing overseas talent developments. Total overseas headcount increased by 16.1% to 426 in 2023.

Operating profit during this quarter was RMB 221 million, effectively flat when compared to the same period last year and down 11.3% sequentially. Operating profit margin during the quarter improved on a year-over-year basis to 27.6%, a decrease compared with the previous quarter as we typically have more marketing and client activities during the fourth quarter. Operating profit for the year was RMB 1.1 billion, a slight increase of 0.9% year-over-year, while operating profit margin for the year remained at a healthy level of 33.3%.

Total other income for the year was RMB 111 million, increased by 82.2% year-over-year, mainly due to optimization of our capital management and currency mixes. This was partially offset by noncash investment losses from certain balance sheet investments due to mark-to-market adjustments.

Non-GAAP net income during the quarter was RMB 234 million, up 56.7% year-over-year and RMB 1 billion during the year, a slight increase of 1% from the last year.

Turning to the results of each segment during the year. Net revenues from Wealth Management were RMB 2.5 billion, and net revenues from asset management were RMB 766 million, accounting for [ 75.26% ] and 23.3% of total net revenues, respectively.

On the client side, as of the end of quarter, we have 7,369 Diamond Card clients, down 2.8% year-over-year and 1.2% quarter-over-quarter. However, the number of Black Card high-end tier clients increased by 8.8% year-over-year and 1.7% quarter-over-quarter, reaching a total of 2,289. The total number of Diamond and Black Card clients was 9,658, slightly down 0.3% year-over-year, primarily due to a sluggish equity market and downbeat investment sentiment. That being said, we're still confident to capture more market share by continued enhancements in our global product service offerings and achieving a 1% market share in high net worth individual wealth management market as a goal.

Overseas registered clients at the end of the year increased by 14.2% year-over-year to 14,929, and overseas active clients of the year increased by 38% year-over-year to 4,629 as we continue to build up overseas presence.

Turning to our balance sheet. We have maintained a healthy liquidity position with our current ratio at 3.8x, and our debt-to-asset ratio at 17.8% with 0 interest-bearing debt. We have RMB 5.2 billion in cash and cash equivalents, providing ample resources to support our global expansion plans and making improvements in shareholder return, which the Board has always considered a priority.

Therefore, I'm very delighted to announce that based on our strong and clean balance sheet and strong liquidity position and after considering the necessary investments associated with global expansion plan, the Board has approved an annual dividend of RMB 509 million for 2023, which is equivalent to 50% of the year's non-GAAP net income attributable to Noah shareholders in accordance with the capital management and shareholder return policy announced last quarter.

In addition, the Board has also approved a nonrecurring special dividend for the year of RMB 509 million in total for 2023. Thus, the amount of total shareholder returns for 2023 in the form of cash dividend will be RMB 1 billion, equivalent to 100% of 2023 non-GAAP net income, subject to final approval at the AGM in June 2024.

At the current market value, our recurring payout plan provides a very attractive dividend yield of over 10%, and the total payout plan with additional special dividend will yield over 20% for shareholders.

In summary, we believe that the share price of Noah is significantly undervalued to its intrinsic value. We remain extremely confident in our long-term growth prospects, whilst committed to improving our return on equity and to creating more value for our shareholders through enhanced shareholder returns. Once again, we sincerely appreciate our shareholder support for your ongoing trust. Thank you for listening. And I'll now open the floor for questions. Operator?

[Operator]

[Operator Instructions] The first question today comes from Helen Li with UBS.

[Heqing Li, analyst]

[Foreign Language] So this is Helen from UBS. Two questions, if I may. First, the number of covered cities declined to 44, and RMs declined 11% in the fourth quarter. Is it because of loss of RM from the bench closure? Or are you laying off RMs? And what's your future plan for the onshore business in terms of RM?

And my second question. At last year's open day, you talked about structural product and hedge-ran products, which could be a driver for onetime commissions going forward? What's the penetration rate of this product? And what's your product strategy this year? And what's the business outlook for 2024?

[Qing Pan, executive]

Thank you, Helen. I think I will take the first question. [Foreign Language] So to your first question, Helen, it's -- I guess it's probably a result of both. One is obviously the consolidation of networks. Obviously, some of the relation managers choose to not leave the smaller city and work in the hub city. So there's still a little bit of a commute between the hub city and their original city. So there's some natural loss, but it actually doesn't account for too much of the decrease.

And 2 is really obviously the optimization. We are increasingly improving the threshold in terms of assessment efficiency of these RMs. So naturally, for the RMs, they have to reach a higher threshold, if you will, to be continuing to remain in the team. But we're actually actively adjusting the structure obviously with heavier investments on the global side over CRMs. We're probably also emphasizing on the overall comprehensive capabilities of the skill set of the RMs. [Foreign Language]

[Zhe Yin, executive]

[Foreign Language]

[Melo Xi, executive]

[Interpreted] Yes. Graham, so I will take the translation for Zander. So in terms of the optimization of our domestic network, we always adhere to the strategy of following the footstep of our clients. And over the past few years, we have noticed the trend of high net worth individual clients to relocate from lower-tier cities where they basically accumulated their first bucket of coats to core cities and first-tier cities. And as our strategy follows them.

And also, on the other hand, given the current challenging macroeconomic condition, we need to concentrate and reallocate our core strength and resources to improve operational efficiency. Therefore, in the fourth quarter last year, we basically limited some of the underperforming RMs and professionals. So this is quite different from our expansion strategy in the past. So now we are more focusing on allocating our strength and resources to the individuals with high performers. And in fact, the top performers over the past year, their -- basically their KPI and the AUM or transaction value per head has increased [ to ] more than 30% over the past year.

[Jingbo Wang, executive]

[Foreign Language]

[Melo Xi, executive]

[Interpreted] So in conclusion, in the past few quarters, we have rather focused on consolidating our domestic network. So you can probably see that the speed of the RM headcount domestically, the decrease of the headcount is actually slower than the decrease of the number of cities we consolidated, which means we are currently still under further evaluation for our workforce.

So in terms of your second question, on the penetration rate for hedge fund products, structured products and cash management products. So we're not seeing that the penetration rate for hedge fund and structured product is still very low. However, in the first quarter this year, in 2024, the penetration rate for structured products, especially with the principal protection mechanism, has been increasing. And we are also seeing the potential of clients whose wallet with us is currently in cash management-related products. As the interest rates starting to -- or is expected to trend down in the future, we see the opportunity to convert these wallet shares into other alternative investment products, including hedge fund and structured products. Helen?

[Heqing Li, analyst]

Very clear. [Foreign Language]

[Operator]

[Operator Instructions] The next question comes from Peter Zhang with JPMorgan.

[Peter Zhang, analyst]

[Foreign Language] My first question is about the dividend. I wish to check with the management what's the rationale behind on the special dividend payment in -- for this year. And given that we still have a very strong cash balance on our balance sheet, looking ahead, do we have any share buyback plan or other, say, long-term shareholder return plan investment income in the other income in our P&L. There's a CNY 54 million investment losses in fourth quarter due to investment losses. I wish to understand what is the rationale behind? And what are the underlying investments?

[Qing Pan, executive]

Thank you, Peter. I'll take the first question, and Nora and Zander will jump in as needed. So for the special dividend, after ample discussions with our investors, and we have basically passed on the message to the Board, we'll continue to anticipate strong cash flows from our future operations. And by -- after carefully evaluating the capital need for global expansions and really not any, I guess, clear target for heavy capital utilization, we believe that it's the right time to return to our shareholders with heavier ratio in terms of special dividend in the form of special dividend.

I guess with the depression on Chinese ADS share price, mostly actually not too much associated with the fundamentals. We don't believe stock repurchase actually add too much value at this point. We obviously will not exclude that option going forward. But for this year, we'll prioritize on the cash dividend payout in the form of special dividend. [Foreign Language]

[Peter Zhang, analyst]

True. That's very clear. .

[Qing Pan, executive]

[Foreign Language]

[Operator]

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Grant Pan for any closing remarks.

[Qing Pan, executive]

Okay. Thank you very much for our shareholders and analysts for your continued trust and support, and this will conclude today's earnings release. And if you have further questions, we have arranged one-on-one sessions. I'll be very happy to share more insights with you. Thank you.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

[Qing Pan, executive]

Thank you..

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]